HSBC didn’t get handcuffs. They got a tax write off, otherwise known as the cost of doing business in today’s banking industry. Are we really supposed to call that a deterrent?

What’s troubling, and not the least bit ironic, is this is the same government that screams that homeowners who strategically default are creating a moral hazard.

That is exactly what federal prosecutors have done by not seeking an indictment. They have created a moral hazard on Wall Street, a slippery slope that will only get worse unless the DOJ reverses direction.

And this hazard will have a much greater impact on the real estate market than when a homeowner decided to walk away from a worthless underwater mortgage.

Edward DeMarco, acting director of the Federal Housing Finance Agency, has repeatedly made the argument that it is wrong for Fannie Mae or Freddie Mac to offer principal reduction to someone who is behind on their mortgage because it will encourage other homeowners to engage in risky behavior in order to benefit financially.Continue reading→